Archive for gold prices

Following last Friday’s strong performance by gold which saw the precious metal almost reach $1630 per ounce on the day it’s been no surprise to see the commodity fall back in early trading on the physical exchange with the price of gold twice basing in the $1610 per ounce region before starting to climb higher once again. And with turmoil once again returning to the markets gold it is no surprise to see gold once again return to its safe haven status.

With a good platform of support in the $1520 price area gold will now be looking to test resistance, first at $1620-$1625 before once again attacking the $1660 region and beyond. For intraday gold traders Hawkeye is invaluable, not only because of its ability to look at both price and volume in multiple time frames but with the roadkill indicator the software is able to give gold traders early and accurate entry signals based on volume price analysis. When this is coupled with the optimal tick charts from the gear changer this gives gold traders the powerful edge they need to succeed.

For those of you who follow my regular forecasts and updates will already know that I primarily trade in both commodities and forex using my own unique analytical methods which I call transactional trading. Last month I was invited by the CME to talk about the oil market as part of their trading around the world series event, and one of the questions I was asked following the presentation was about the COT report and how I use this data personally. So, let me try and explain by using one of the recent reports from the CFTC.

Now as you MAY know this report is published weekly every Friday in the US by the CFTC, or the Commodity and Futures Trading Commission
and in simple terms it reports the changes in the futures contracts across a wide variety of markets including commodities and currencies with the reports based on data from the major exchanges such as the CME. For novice traders these reports can seem rather daunting at first glance as the format is far from user friendly, and indeed there is a lot of it which can very confusing, and indeed some traders dismiss this information as it is normally three days out of day by the time the reports are published, as the data is based up to, and including the previous Tuesday, so it has its faults.

Nevertheless in my opinion it can provide a broad but useful guide to market sentiment in the futures markets which is generally considered to be where the professional traders operate, and provided one remembers that within the data there are real products being bought and sold for physical delivery, as well as the speculative trading which is part and parcel of the futures world, then this can provide us with an alternative view of the market we are trading. A triangulation if you like. So let’s look at some real numbers and I’ll explain how I use them and what they can reveal as to the market sentiment for the commodity or currency we are trading.

In this case the report we’re looking at is the WTI light sweet crude oil contract, but the approach I take is identical for all commodities and currencies I trade, and as always I like to keep things very simple, and as such I only look at the so called Non commercial group, who are considered to be the major speculators, rather than those groups buying or delivering the physical commodity.

As we can see from the the June 28th report we have 317,951 contracts to the long side and 183,397 contracts to the short side, giving us a net overall position of 134, 554 to the long side, so in other words the speculators are heavily bullish and therefore expect the price of oil to rise further. However, you cannot use this one figure in isolation and the key is to consider this net difference against the previous week and of course over the longer term, so that gradually we build up a picture of how the net market position is changing week by week and month by month, and as such create a picture of ongoing market sentiment.

Now in addition to the change in the net futures positions, we also look at the so called open interest, which is not volume, but simply the number of open contracts at any one time, and in this case we have over one and a half million, which clearly indicates indicates a market with deep liquidity, and the key here is once again to compare with previous weeks and months, to gauge how the open interest compares with the changes in the net market position, which once again can reveal longer term changes in market sentiment for the commodity or currency.

So in summary, whilst this report is far from perfect, it does provide us with an alternative view and one I believe is both valuable and meaningful, and is only a few minutes work each week to pick the numbers we want and to then plot them on a chart, which then builds into our own view of the market on a weekly basis basis. So whether we are trading gold, oil, or silver or indeed any of the major currencies, this is a valuable report to use in our longer term market analysis.

The price of spot gold continued to move lower once again yesterday, following the market’s nervous reaction to a potential interest rate rise in China, sparking fears of falls in demand across the commodity sector as inflation continues to take a firm hold in the Chinese economy. Over the weekend however, the People’s Bank of China kept rates on hold for the time being, calming the markets in the short term. Despite this decision, spot gold continued to press lower, ending the day with a relatively narrow spread down candle on the daily chart, which broke and held below the 14 day moving average, and adding a further layer of bearish sentiment to the metal.

From a technical perspective the move lower can as no great surprise, and indeed this was our conclusion on the 10th November last week following the weakness seen on the daily gold chart with the shooting star candle. Whilst the move lower was more significant than we had expected, this has not changed the longer term technical picture which remains firmly bullish, and provided the 40 day moving average remains unbroken in the 1,246.81 per ounce region, then we can expect to see spot gold prices recover in due course and continue their longer term upwards momentum. In the short term, we now need to see a break and hold above the 14 day moving average at $1,374.10 per ounce, and thereafter a move above the 9 day moving average at $1,386.46 which would then open the way for a test of the $1400 per region and beyond in due course.

As I have said many time before ( and I make no apologies for it ) I am a confirmed gold bug, and like silver, gold continues to remain an excellent longer term investment, and whilst many analysts are calling the top of the market, my own view is that we are well away from any major correction for the precious metal, and I expect to see spot gold making record highs in the next few weeks, and on towards my target for the Q2 next year of $1650 per ounce and beyond.

An interesting and volatile for spot gold yesterday which saw the precious metal reach a high of $1424 per ounce and low of $1383 before closing the gold trading session as a narrow spread down candle but with wicks to both top and bottom, and eventually closing at $1396.35. The candle thus formed is giving us a strong signal that we may see a temporary pullback from the recent surge higher and indeed in today’s gold trading session so far, this has certainly been the case once again with the spot gold price oscillating between $1410 to the upside and $1383 to the downside. Should today’s doji candle be confirmed at the close tonight then this will add further weight to the analysis suggesting a re-tracement and a possible pullback to test the 9 day moving average which currently sits at $1377.21 on the daily spot gold chart.

Over the last two days this has remained untested and any breach here may bring the 14 day into play along with a potential platform of support at $1378.04. With the longer term trend still remaining firmly bullish yesterday’s candle is simply symptomatic of a market that was beginning to overheat and, as such, is cooling off before resuming its upwards path.

The bullish trend for spot gold shows no sign of abating with the spot gold price surging higher once again yesterday to close at $1405.50 per ounce, having achieved an intra day high of $1410.40. This bullish sentiment has spilled over in today’s gold trading once again, as the spot gold price has continued to climb to trade at time of writing at $1420.65, only $30 per ounce short of my end of year forecast of $1450 per ounce which I will now have to revise upwards!!

The upwards momentum has been given a further boost in the last few days by some loose talk of a possible return to some form of “gold standard” in an endeavour to bring some measure of control to the currency markets. However, given that the original gold standard was largely responsible for the Great Depression this seems highly unlikely, but it is certainly helping to propel the precious metal higher and indeed in an article I posted last night there was a suggestion that gold could even achieve $10,000 per ounce when considered against previous benchmarks of bonds and equities. You can read this article by following this link. Gold Standard